Improving and optimising your actuarial processes, systems and operations requires vision and more often than not implementing change. There are two main approaches adopted by businesses to help fuel improvement – Continuous Improvement and Step Change.
What is the Step Change Approach?
Also referred to as ‘discontinuous improvement’ the step change approach involves a radical shift from the current state and usually requires significant resources and effort. A step change is driven by various factors, such as a new market opportunity, a major acquisition, a breakthrough in technology, or a shift in consumer behaviour.
For insurance companies, Step Change can be an effective strategy for quickly achieving significant improvements to processes or systems e.g. introducing AI or machine learning to help actuaries to process large amounts of data more quickly and accurately.
Step Change is a high-risk, high-reward approach to improvement and has the potential to yield significant benefits but also carries a high risk of failure. There needs to be a willingness and commitment from management and stakeholders to take risks, as well as a culture of innovation and experimentation within the business. However, this can be challenging for the insurance industry, which traditionally prioritises stability and predictability over risk-taking and experimentation.
The Benefits of Step Change
Rapid improvement: Step Change enables you to make significant changes in a short period, which can lead to rapid improvements in processes, products and services.
Competitive advantage: Your organisation can gain a competitive advantage, especially if the change brings extensive improvements in efficiency, quality or innovation.
Innovation: Step Change can create a culture of experimentation and risk-taking.
Improved customer satisfaction: It can lead to better products and services helping improve satisfaction levels for internal and external customers.
Enhanced employee engagement: Involving employees in identifying opportunities for improvement and implementing changes can enhance their engagement and sense of ownership in your organisation’s success.
The Drawbacks of Step Change
While applying a Step Change can achieve real benefits such as improved efficiency, innovation and growth, it can also have negative aspects including:
Disruption: Step Change often involves significant changes to established processes and procedures, which can cause disruption and uncertainty among employees and stakeholders. This can lead to resistance to change, and a decrease in productivity.
Costs: Implementing Step Change can be costly, requiring significant investments in technology, training and infrastructure. This puts a strain on an organisation’s finances, particularly if the expected benefits take time to materialise (and sometimes never do).
Risk: Step Change often involves a high level of risk, particularly if it involves new and untested technologies or processes. There is a risk that the changes may not deliver the expected benefits or may have unintended consequences.
Employee morale: Significant changes in an organisation can create anxiety and stress among employees, particularly if they are unsure about their roles or the future direction of the company. This can lead to a decline in morale and motivation.
Resistance to change: Change can be challenging, and many people resist it. This can make it difficult to implement Step Change successfully, particularly if there is a lack of buy-in from key stakeholders or employees.
What is Continuous Improvement?
Continuous Improvement is a medium to long-term approach that focuses on gradual and incremental change to areas such as actuarial processes, systems and insurance products over a period of time. By making small, incremental changes to processes and systems, you can increase accuracy, reduce errors and improve efficiency.
Continuous Improvement is at the core of the Kaizen management philosophy. Applied correctly Continuous Improvement is incredibly powerful and can be applied at an organisational, departmental or individual level.
Typically, Continuous Improvement is based on cooperation and commitment, in contrast to the radical or top-down changes of Step Change. Whether it’s looking at processes, customer service or employee training and development, making small, incremental and positive changes over time will improve efficiency, quality and performance. While it may not result in the same dramatic improvements in a short space of time as Step Change, Continuous Improvement will lead to significant advances overall.
And where Step Change is usually seen as the approach to take in order to drive innovation, Continuous Improvement can also foster innovation through experimentation and adaptation. For example, actuaries can experiment with new data analysis techniques or adjust pricing models based on changing customer needs. This helps to improve performance incrementally.
The Benefits of Continuous Improvement
Increased Efficiency: Continuous Improvement helps to identify and eliminate inefficiencies, redundancies and bottlenecks in processes, thereby improving efficiency and productivity.
Higher Quality: Through Continuous Improvement, organisations can identify areas that require improvement, leading to an increase in the quality of products or services.
Greater Customer Satisfaction: By improving quality, efficiency and productivity, organisations can better meet the needs and expectations of their customers, resulting in higher levels of satisfaction.
Improved Employee Engagement: Continuous Improvement can empower employees to identify and solve problems, leading to a sense of ownership and pride in their work.
Cost Savings: By reducing waste, improving efficiency and eliminating redundancies, organisations can reduce costs and increase profitability.
Competitive Advantage: Organisations that embrace Continuous Improvement are better equipped to stay ahead of the competition by delivering higher-quality products or services, improving customer satisfaction and reducing costs.
Continuous Improvement is a powerful tool for driving positive change within an organisation, leading to better performance, higher quality and greater success. What’s more Continuous Improvement is generally considered to be a lower risk and more flexible approach to improvement than Step Change, but like anything done badly, there can be negatives.
The Drawbacks of Continuous Improvement
Resistance to change: Even though Continuous Improvement involves making small changes, these may still meet with resistance from some employees or stakeholders who are comfortable with the status quo. Resistance needs to be managed through good communication, otherwise, it will slow the pace of improvement and make it difficult to implement changes effectively.
Lack of major breakthroughs: While Continuous Improvement leads to steady improvements over time, it may not lead to major breakthroughs or significant improvements in a short period of time.
Limited scope for innovation: Continuous Improvement is focused on optimising existing processes and systems, which may limit the scope for innovation or new approaches to solving problems.
Which is the right approach for my business?
A Step Change approach can have a significant impact but successful Step Change is disruptive and involves a fundamental rethinking of processes and systems. To implement it requires investment, strong leadership, excellent communication and a committed workforce. Ambitious Step Change plans need to be prepared for fast-moving changes in technology that may occur before the end goal has been reached. And all too often, people revert back to “the old way” as the changes introduced are too dramatic or simply don’t deliver on what was promised.
Continuous Improvement involves incremental changes to processes, products, and services over time. It provides a conduit for a long-lasting approach to improved operations. A slower approach creates an environment for increased efficiency, accuracy and reduced costs. An effectively adopted Continuous Improvement approach fosters greater staff engagement and an opportunity for more people to be involved in the early stages of the process. This can then encourage innovation through the opportunity for experimentation and adaptation.
At MBE Consulting, we believe that Continuous Improvement is the key to success for our clients. We’ve observed numerous instances where poorly planned Step Change programmes have resulted in project failures. Our Actuarial Performance Management (APM™) Framework focuses on an incremental approach to transformation in the six key areas of a successful actuarial strategy; People, Models, Methodologies, Systems, Data and Processes. The APM methodology entails breaking down the transformation process into small, well-defined phases that gradually release capacity and deliver measurable value at each step. By adopting this approach, our clients can and have achieved genuine efficiency and cost savings while generating the necessary momentum for change.
The optimal starting point for transforming performance is examining your processes, systems, and operations to discern what is functioning effectively and what needs improvement. Completing our Actuarial Performance Assessment is the first step.
